Bitcoin Miners Chasing Cheap Power

There have been a few get-rich-quick stories among the Bitcoin “miners,” who use stacks of powerful computers to solve complex math problems used to create the virtual currency. The trouble is, crunching those numbers takes a tremendous amount of energy.

Fred Trotter, a co-founder of data journal and software company Not Only Dev, estimates that in the five years Bitcoins have existed, machines dedicated to mining them have consumed 150,000 megawatt-hours of electricity—enough to keep the Eiffel Tower lit for more than two and a half centuries.

To ensure they can turn a profit, Bitcoin miners are scouring the globe for the cheapest power, from sleepy rural towns in America’s Pacific Northwest like Eastern Washington to the shadows of volcanoes in Iceland, where a few enthusiasts have built some of the world’s largest Bitcoin mining collectives using low-cost geothermal energy.

When power costs are high, it becomes a lot tougher to justify mining Bitcoins, says Alex Wilhelm, a miner and software engineer living in Tokyo. “If the electricity price goes up, the math stops working,” he says.

Wilhelm doesn’t keep his modest 30-server mining operation, which he estimates will earn $12,500 this year, in Japan. Instead it’s sitting halfway around the world in the tiny Austrian village of Tattendorf, where Wilhelm grew up. He gets electricity there free from his father’s power plant, a water-driven turbine housed in a two-century-old brick building that has been in the family for at least six generations and once powered the entire village.

From Tokyo, Wilhelm manages his Austrian server farm over the Internet, with video cameras that give him a look at the rows of circuit boards hanging like bats from metal racks inside the cavernous stone room where he used to play.

In his Tokyo apartment, Wilhelm pulls up the Bitcoin calculator on the website CoinWarz to show why his server farm isn’t located at home. The setup burns 10 kilowatts, and electricity in Tokyo costs about 25? per kilowatt-hour, among the most expensive rates in the world.

He estimates that he’d lose about $13 per day on Bitcoin mining there, after the $70 in daily power charges. It’s also nice not to have to deal with the noise: The fans that cool his Bitcoin servers run so loudly that when he switches on his audio feed, the noise from the speakers is a little like standing under a waterfall. “You can imagine if you have something like this at home, your wife won’t be very happy,” Wilhelm says. “It’s just loud, and it’s hot, and it’s expensive.”

Not everyone has a power plant in the family. Robert Van Kirk, who co-founded a company called MyRigSpace.com that hosts other people’s mining gear in an old Portland (Ore.) server farm, is comparison shopping. He and partner Damir Kalinkin aren’t satisfied with paying 5 cents per kilowatt-hour there, even though it’s about half the U.S. average.

Van Kirk says they’re planning to move to Moses Lake, Wash., a quiet town with more cows than people and the second-lowest electricity rates in the U.S., after Minot, N.D. Each kilowatt-hour there costs 1.7?, making Moses Lake a destination for Bitcoin miners. “I called a real estate agent, and I told them we need a location with a lot of electricity,” Van Kirk says. “He said to me, ‘Oh, are you guys involved in Bitcoin?’?”

Bitcoin’s biggest problem lately has been stability. The February disappearance of more than $500 million worth of Bitcoins from Tokyo-based Mount Gox, one of the biggest exchanges, has given the virtual currency a black eye. But power consumption has always been a primary issue, says cryptographer Philipp Guhring, who co-authored a 2011 paper on energy’s role in virtual mining. “Yes, you need the hardware, and you need the software, but electricity is the core thing that drives Bitcoin,” he says.

Wilhelm is betting his low-cost mining will pay off. He says he and his father worry they’ll have to close the Tattendorf power plant when energy subsidies run out in 2016. They may be able to keep it open, he says, with a successful Bitcoin operation—if the virtual currency repeats its performance from last year, when it shot from $13 apiece to around $1,100. “It all depends on the value of Bitcoin,” Wilhelm says. “If you’re mining at this stage?…?you’re doing it because you believe it will go up.”